Loan Types
Your Mortgage Path mortgage broker will help you gain a good understanding of the types of loans available, the home loan process, what the banks require you to provide in order to approve your loan and how to choose a good home loan deal.
Access a large range of banks and secure mortgage lenders
When you are choosing a home loan it’s important to make sure you use a mortgage broker with access to a large range of banks and secure mortgage lenders, so you can be sure the home loan you choose is competitive. Mortgage Path brokers work closely with a panel of lenders that contains all of the major banks and secure mortgage lenders in Australia.
The major types of home loans available are:
- Variable Rate Loans
- Fixed Rate Loans
- Split Loans
- Interest Only Loans
- Introductory Rate Loans
- Professional Package Loans
- Deposit Bonds
- Line of Credit Loans
- Low Deposit Home Loans
- Low Doc or No Documentation Loans
- Non-Conforming Loans
Variable Rate home loans
The rate charged on a variable loan usually move up or down in accordance with movements in interest rates, as set by the Reserve Bank. Basic variable loans generally have fewer loan features than a standard variable loan. Basic variable loans are suitable if you are looking to pay off a consistent amount over the full term of the loan, but are not suitable if you are looking to pay off your mortgage quickly.
Fixed Rate home loans
A fixed rate loan is a loan that has a fixed interest rate and therefore fixed loan repayments. The time period of these loans can vary, but you can usually lock in your repayments for between 1-5 years. Although the fixed rate period may be 3 years, the total length of the loan itself may be 25 or 30 years. At the end of the fixed loan period you can decide whether to fix the loan again for another period of time at the current market rates or convert the loan to a variable interest rate for the remaining time left of the loan.
Split Loans
A split rate loan is a loan that has one portion of the loan fixed and one portion variable. You can select how much to allocate to each.
Interest only loans
You repay only the interest on the principal during the term of the loan therefore, repayments are lower than with a standard principal and interest loan. At the end of the interest only period usually one to five years you must start making principal and interest Repayments over the remaining term of the loan.
Introductory home loan
The interest rate is usually low to attract borrowers. Also known as a honeymoon rate, this rate generally lasts only for around 12 months before it rises. Rates can be fixed or capped. Most revert to the standard rates at the end of the honeymoon period.
Professional packages
Professional packages can offer substantial discounts and special benefits, but are only available to those who can satisfy specific criteria. The main criteria for most professional packages are that the home loan be in excess of $150,000.The benefits vary between lenders, but in general can include interest rate discounts of between 0.50 and 0.9 per cent for the life of the loan, lower fees and discounts on other bank products.
These are generally great products and well worth considering if you qualify.
Deposit bonds
Buying a home can be a stressful experience, which is why deposit bonds help makes the home buying process easier, and help save you time and money.
A Deposit Bond or deposit guarantee acts as a substitute for cash and you can use the bond when exchanging contracts and when purchasing at auctions. It gives you the freedom to concentrate on finding the right property and keeps your savings earning interest right up until the day of settlement.
Advantages of obtaining a Deposit Bond:
- No need to break fixed term investments which may incur fees
- Secure your new home without using your savings or bridging finance
- Purchase with confidence at auctions and private sales
Line of Credit loans
This type of property loan revolves around equity built up in your property and allows access to funds when needed. These products are creative ways to raise funds for property investment by providing cash up to a pre arranged limit. Each month the loan account balance is reduced by the amount of cash coming in and increased by the amount paid on the credit card or withdrawn in cash. As long as there is consistently more cash coming in than going out these accounts can work well. However, they can be very costly if the balance of the line of credit is not regularly reduced. It usually requires an interest only payment as a minimum each month, which can add up to a lot of interest over the long term.
Low Deposit Home Loans
Found your dream home but haven’t saved enough for a deposit? If you're an owner occupier, you may buy your home with as little as 5% of the purchase price plus associated costs, whether it is your personal savings, a gift from family or another source. You just need to make sure you can show genuine savings, that you can afford the repayments and have funds to cover the transaction costs and a deposit bond, if required.
It’s perfect for First Home Buyers, as you can use the First Home Owner Grant towards your transaction costs.
Low-doc home loans
If you're self employed, you may not have the amount of paperwork that's normally required to apply for a Loan. A Low Documentation (Low Doc) Loan may allow you to obtain the finance when you want, without the usual financial statements or tax returns.
Non conforming home loan
People with poor credit ratings often have trouble sourcing a home loan. Many lenders now offer what are known as non conforming loans for people in this type of situation. While lenders are willing to overlook prior credit problems, they will want to see some evidence of your ability to repay the loan. A larger deposit will generally be required also.
